Growing inequality, which has made us one of the most unequal developed nations on earth, is not an accident

What Causes Inequality?

This is the second in our series of brief articles about inequality. In this article we look at the causes of inequality in the United States. Perhaps it’s important to first acknowledge that growing inequality, which has made us one of the most unequal developed nations on earth, is not an accident. It is a result of deliberate public policy choices and choices made by those responsible for the stewardship of corporations. Here’s Warren Buffett’s perspective: “My friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice.”

Why would he say this? This brings us to the first of three causes of growing inequality that we will mention, namely our taxation policy. Tax rates have plummeted for the wealthiest households since the 1970s. For the highest earning 0.01% of our population, overall federal tax rates have fallen almost in half, from about 70% to about 40% today, whereas for the bulk of our population there has been little change. I am reminded of Justice Louis Brandeis observation “We can have a democracy or we can have great wealth concentrated in the hands of the few. We cannot have both.”

Which brings us to the second public policy cause of growing inequality. That is the decline in the real minimum wage. Today it is 23% below its peak in 1968, which not coincidentally was also the time when we had the lowest level of inequality in our country. We have been employing a reverse Robin Hood principle, taking from the poor to give to the rich. It’s not surprising that William Sloane Coffin observed that we have “a government of the wealthy, by the wealthy, and for the wealthy.”

Which brings us to the third cause of growing inequality, growing inequity in compensation in corporations. Today CEOs of major U.S. corporations earn several hundred times the average compensation of American workers With this degree of inequity a CEO typically earns more in one day than an average worker earns in a year. By contrast in the 1970s few senior executives made more than 30 times what their workers made. Furthermore, the performance of the companies with the highest-paid CEOs was much worse than industry average in one study.

There’s hope though. Here’s Tommy Douglas, founder of the Canadian public healthcare system (and a national hero for that) “Courage, my friends; ‘tis not too late to build a better world.” And here’s Muhammad Yunus, founder of the Grameen Bank and Nobel Peace Prize recipient, “I strongly believe that we can create a poverty-free world, if we want to. We can create a world where there won’t be a single human being who may be described as a poor person. In that kind of a world, [the] only place you can see poverty will be in the museums.”

About this article…

Parts of this article are excerpted from Business Behaving Well: Social Responsibility, from Learning to Doing, 2013, edited by Ron Elsdon, Potomac Books, Inc., http://www.potomacbooksinc.com/Books/BookDetail.aspx?productID=293765